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Advanced Accounting11th Edition

Chapter
Problem

On January 1,2011, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $600,000 cash. At January 1,2011, Sedona’s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $80,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has paid a $20,000 dividend. Sedona recorded income of $70,000 in 2011 and $80,000 in 2012.

Selected account balances from the two companies’ individual records were as follows:

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